'Fiscal Crisis' in France: Government Bond Yields Fall Behind Corporate Bonds

Yields on Bonds of 10 Major Companies Fall Below Government Bond Yields

The Financial Times (FT) reported on September 14 (local time) that, due to concerns over France's political crisis and rising debt, an unusual situation has occurred in which the bond yields of major French companies have fallen below those of French government bonds. This indicates that the market currently considers large French corporations to be more trustworthy than the French government.

According to data compiled by Goldman Sachs, the bond yields of ten leading French companies-including L'Oreal, Airbus, and AXA-have recently dropped below the yields of French government bonds with similar maturities. This is the largest number of companies to experience such an inversion since 2006.

On the 13th (local time), protesters held a banner reading "Macron Explosion" during the "Nation Paralysis" protest held in Nantes, France. Photo by AFP Yonhap News

This yield inversion emerged after French Prime Minister Francois Bayrou resigned recently. Within less than a year, two prime ministers have been ousted, deepening investor concerns about French government bonds.

Previously, on September 12, international credit rating agency Fitch Ratings downgraded France’s sovereign credit rating by one notch from 'AA-' to 'A+', citing domestic political division and increasing polarization.

Currently, the yield on French government bonds is even higher than that of Greek government bonds, despite Greece having the highest national debt ratio in the Eurozone.

Carsten Junius, chief economist at Swiss bank J. Safra Sarasin, stated, "The fact that French government bonds are trading at the same level as French corporate bonds signals that they are no longer considered risk-free assets," adding, "They are now being traded like emerging market bonds." In emerging markets, it is common for corporate bond yields to be lower than government bond yields.

Such a situation is unusual for France, which is a large and wealthy economy in the Eurozone and typically enjoys lower government bond yields. Goldman Sachs reported that, across the entire Eurozone, more than 80 companies are now trading at lower yields than French government bonds.

For example, LVMH’s bond maturing in 2033 had a yield about 0.2 to 0.6 percentage points higher than government bonds of similar maturity in early 2024 and 2025. However, this week, its yield fell up to 0.07 percentage points below that of French government bonds, marking the largest gap since its issuance in 2023.

Mike Riddell, a fund manager at Fidelity International, said, "It is even more surprising considering these corporate bonds are much more liquid than government bonds," explaining that this reflects an oversupply of French government bonds in the market rather than a perceived increase in default risk.

This content was produced with the assistance of AI translation services.